Procedures and Documentation in International Purchasing notes

Procedures and Documentation in International Purchasing

  • Methods of specifying requirements in international purchasing
  • Procedures involved in international purchasing
  • Methods of certifying quality of goods for international markets
  • Factors considered in selecting international modes of transport
  • Settling disputes in international purchasing
  • Procedure for clearing and forwarding goods from overseas suppliers
  • Documents used in international purchasing

PROCEDURES AND DOCUMENTATION IN INTERNATIONAL PURCHASING

Upon completing this topic, you should be able to:

Acquire knowledge of basic import process, documentation and the customs clearance procedure that organizations undergo when purchasing from overseas sources into Kenya.

 2.1 INTRODUCTION

Exporting and importing are two sides of the same coin; both supply customers with products manufactured outside the country.

Exporting and importing requires an enormous amount of thought and attention to detail, especially documentation. If documents are missing or wrongly filled out then the transaction will be void.

2.2 Methods of specifying requirements in International Purchasing

  1. Performance specification -Defines the purpose of the goods or services in terms of how effectively it will perform.
  2. Technical specification –Are specifications that define the technical and physical characteristics and or measurement of a product such as physical aspects.
  3. Functional specification- Define the function, duty or role of the goods or services. Nominates what the goods or services or broadly required to do.

2.3 Procedures involved in International Purchasing

 2.3.1 Import/Export Process

The term import is derived from the conceptual meaning as to bring in the goods and services into the port of a country. The buyer of such goods and services is referred to an importer who is based in the country of import whereas the overseas based seller is referred to as an exporter. Thus an import is any good e.g. a commodity or service brought in from one country to another country in a legitimate fashion, typically for use in trade. It is a good that is brought in from another country for sale.

Import goods or services are provided to domestic consumers by foreign producers.

An import in the receiving country is an export to the sending country.

The following is the procedure for the importation process

  1. Obtaining Market Information

Before embarking an import business one need to obtain import information which can be obtained from:-

  • Kenya national chamber of commerce and industry
  • Export processing zone authority (EPZA)
  • Commercial attaché at the local bases embassies and high commissions
  • Joint Kenya Arab chamber of commerce
  • Established importers
  • Internet
  • Visiting potential markets and exhibitions

After deciding on goods to be bought and identifying the supplier, the importer follows the following procedure of importation

  1. Place an order with supplier.

Before placing an order for goods, an importer should ensure that

  • She/he has a trading license.
  • She/he has an import licence if required which can be obtained from KRA.
  • If it is food, drugs or chemical substance obtain permit, where necessary. This can be obtained for Port Health Office or Pharmacy and Poisons Board.
  • If agricultural products, obtain plant import permit.
  • Determine the goods you need to import in respect of; description, quality, specifications and quantity.

Finally, send out information to the identified supplier clearly stating the following:

  • Description of the goods.
  • Technical specifications
  • Quantity
  • Price
  • Delivery period
  • Regulatory requirements e.g quality standards, health and safety standards.
  1. Supplier arranges to meet the order, this stage entails;
  • Discussing with the importer and agree on terms and enter into a contract.
  • The importer advises the supplier on the bank s/he will use.
  • The importer makes payment arrangements according to the contract.
  1. The supplier prepares commercial invoice bill of lading, packing list and certificate of compliance and sends to the importer.

Once the suppliers has complied with relevant regulations above then, Appoint clearing agent and forwards documents to them, the clearing agent does the following;

  1. Computes customs duty, port charges and transport charges and advises the importer,
  2. Makes arrangements for transport of the goods to the importer’s premises.
  3. Prepares custom declaration after obtaining all the necessary documents and lodges them with customs:
  •   This clearing documents are:- Electronic declaration form ( Form C – 52), commercial
  •   Invoice, bill of lading ,packing list, certificate of compliance and bank deposit.
  •  The clearing agent the self assessment taxes at the bank.
  •  The prepared documents are sent to the customs. Custom check the documents and release the document for verification. Goods are verified by custom and other interested regulatory bodies e.g KEBS. Goods are finally released to the buyer or agent.

 

2.4 Methods of certifying quality of goods for International Markets   

(a) Issue of certification documents related material symbols

(b) Communications

(c) Review payment

(d) Advertising

(e) Warranty

(f) Opportunities for rating (raising) review on preferential terms

(g) Bonuses for engaging other review customers

(h) Organisation of an actual review and creation of working condition

 

2.5 Factors considered in selecting International modes of transport

Selection of mode of transport largely depends on the following important factors

  • Cost of transport. Depends on place, time and type of transport to be used.
  • Value of the commodity is the first factor, which largely influences the cost of transportation and hence is the fundamental determinant so far as the selection of the mode of transport is concerned.
  • Size of the shipment. Depending upon the size of the shipment, the cost of transport is determined. The larger is the shipment the lesser the cost. Transport cost here increases at the decreasing rate.
  • Distance covered. Though transport cost shows variations depending on the distance covered by the shipment but the transport cost increases at lower rate with the increase in the distance to be covered.
  • Speed and time go hand to hand. Consignment must reach in time and delivered to the consignee when needs it most. Speed may influence the selection of mode as well as determine the cost to a greater extent if the goods transported are to reach the destination at it is eariest.
  • Type of transport. There is direct relation between speed, transport cost and choice of mode of transport. Flexibility and serviceability of the form of transportation is also directly linked with the both the choice as well as cost. Air transport is the costliest. One usually does not go in for air transport unless the goods are necessary for the immediate life saving or they are not in the nature of highly perishable items. As compared to air transport, road transport is cheaper but if it is compared to rail and inland water transport it is costlier. Relatively rail transportation and thus will affect the selection of mode.
  • Flexibility and serviceability . Flexibility and serviceability of the form of transportation is also directly linked with both the choice as well as cost.

2.6 Method used to disputes in international purchasing

Negotiation

It is back and forth communication between the parties of the conflict with the goal of trying to find a solution.

Characteristics of Negotiation

(a) Voluntary

(b) Private and confidential

(c) Quick and expensive

(d) Informal and unstructured

(f) Parties control the process, make their own decisions and reach their own agreements (no third party decision maker)

(g) Negotiated agreements can be enforceable

(h) Can result in a win- win solution

Mediation

Is a voluntary process in which an impartial persons ( the mediator) helps with communication and promotes reconciliation between the parties which will allow them to reach a mutually acceptable agreement.

Characteristics of mediation

(a) Promotes communication and cooperation

(b) Provides a basis for you to resolve disputes on your own

(c) Voluntary, informal and flexible

(d) Private and confidential, avoiding public disclosure of personal or business problems

(f) Can result in a win- win solution

Arbitration

Is the submission of a disputed matter to an impartial person ( the arbitrator) for decision

Characteristics of Arbitration

(a) Can be used voluntary

(b) Private

(c)  Usually quicker and less expensive than going to court, depending on applicable arbitration  rules.

(d) Each party will have opportunity to present evidence and make payment

Litigation (Going to court)

Is the use of the courts and civil justice system to result legal controversies. Litigation can be used to compel opposing party to participate in the solution.

Characteristics of Litigation

(a) Involuntary –a defendant must participate (no choice)

(b) Formal and structured rules of evidence and procedure

(c)  Public – court proceedings and records are open

(d) The decision is based on the law

(e) The decision can be final and binding

(f) Right of appeal exists

(g) Losing party may pay cost

 

2.6.1 Factors to consider when selecting the appropriate method to settle dispute

  • Private and confidential or in a public court settling
  • Time
  • Informal settling and a more flexible process or one that is more format and has specific rules to follow
  • Personal control or decision made by a judge or arbitrator
  • Costs
  • Maintaining relationships
  • Disputes decided on questions of law, resolved with business principles or a solution found through other fair yet practical means.
  • Binding( an agreement or promise) and easily enforceable ( An action which can be made effective)

2.7 Procedures for clearing and forwarding goods from overseas suppliers

The supplier prepares commercial invoice bill of lading, packing list and certificate of compliance and sends to the importer.

Once the suppliers has complied with relevant regulations above then, Appoint clearing agent and forwards documents to them, the clearing agent does the following;

  1. Computes customs duty, port charges and transport charges and advises the importer,
  2. Makes arrangements for transport of the goods to the importer’s premises.
  3. Prepares custom declaration after obtaining all the necessary documents and lodges them with customs.

This clearing documents are:- Electronic declaration form ( Form C – 52), Commercial

Invoice, bill of lading , packing list, certificate of compliance and bank deposit.

The clearing agent the self assessment taxes at the bank.

The prepared documents are sent to the customs. Custom check the documents and release the document for verification. Goods are verified by custom and other interested regulatory bodies e.g KEBS. Goods are finally released to buyer or agent.

2.8 Documents used in international purchasing

  • Trade License – all importers should have trade licensed by District trade development officer under ministry of trade and industry.
  • Code number – every importer should have a code member
  • Import license
  • Only need incase of a few items that are restricted for security , health or environment reasons
  • Product specification permits and certificates some products require special permits and certificate before they can be imported e.g. plants and plants products, drugs and pharmaceuticals live animals, used motor vehicles.
  • An invoice
  • Bill of lading – Document evidencing a contract of carriage of goods. The supplier sends the document to the buyer after he/she has passed goods into the carrier for shipping and they have acknowledged the receipt.
  • Bill of covering freight change.
  • Certificate of origin – Document indicating the country of origin of goods been imported usually issued by exported countries official authority or by other agencies designated by the government where goods originate from.
  • CET- (Common External Tariff) – An identical rate of tariff imposed on good imported from countries outside the regional trade agreement area. E.g. East

African community,  COMESA  e.t.c.

  • Import declaration form (IDF) – A form that is prepared by clearing agent required for all imports.
  • It contains a summary of the information contained in the supporting documentation such as invoice, packing list, certificate of origin, sellers and importers names, addresses and related details
  • Letter of credit (L/C) – A specialist instrument of international trade designed to facilitate trade between the exporter and the importer. It’s issued by the bank to the seller at the request of the buyer. It guarantees payment to the seller if the terms and conditions specified in the L/C are fulfilled.
  • Manifest – The detailed list of cargo been carried on bond by a carrier. It contains quality, identity marks, consigner and consignee of each item.
  • Sales contract – Cater for different laws of languages of buyer and seller in different countries. Sets out the terms of sales transactions and guards against misunderstanding that could be costly in business. Includes of parties involved, description of goods involved, price , delivery terms, payment terms, duration of contract, obligation of sellers and buyers, dispute settlement procedures, definitions and interpretations within the contract.
  • Certificate of compliance – Processed by different authorities such as KEBS and KEPHIS. Include certificate of conformity of analysis and phytosanitary certificate. Issued by supplier country by qualified personnel after inspecting goods and sends it to receiving country to prove compliance.
  • Release order – Issued by port authority. Allow goods to be released to the importer or through clearing agent.
  • Pre shipment inspection Certificate. The mechanism involves audit of the quality of the goods, quantity being exported and prices; proposed and market prices; comparison and comparison of time of shipment. The inspection is undertaken by SGS ( Societe’ Generale de Surveillance “ and other companies.

The process involves the following steps : SGS Representative examines the goods at the place of manufacture or assembly prior o dispatch to ensure compliance with description in sales contract and export documents.

Examination of goods as are being loaded into the ship or container. Issue of Clean Report of Findings ( CRF ) by SGS to their principals if everything is in order, which with other export documents facilities payment. and customs clearance. Issue of a Non – Negotiable Report of Findings (NNRF) when goods are shipped prior to inspection ensure compliance with description in sales contract and export documents.

Examination of goods as are being loaded into the ship or container. Issue of Clean Report of Findings (CRF) by SGS to their principals if everything is in order, which with other export documents facilities payment. and customs clearance. Issue of a Non – Negotiable Report of Findings (NNRF) when goods are shipped prior to inspection

 

Revision question

Discuss the conditions to be met before issuing delivery order

Delivery Order (D/O) is issued upon the satisfaction of the following conditions:

  • Payment of Freight Charges if not Pre-Paid
  • Payment of Container Deposit and/or Demurrages if FCL
  • Signing of a Container Guarantee

Payment of Other Charges e.g. Stripping of LCL

The Delivery Order then forms a part of the Cargo Clearance Documents including the Approved Customs Entry and the Mombasa Port Release Order

 

Solution: … _

 

EXERCISE 1. _ Identify and describe the documents necessary to facilitate customs clearance

EXERCISE 2. _Describe the concept of pre-shipment inspection of imports

EXERCISE 3. _Describe clearly the customs clearance procedure

Further reading

Handbook On Importing And Exporting In Kenya (2011) government printers



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